Restricts the amount of the deduction

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In September? 2008, the IRS changed tax laws to allow banks to utilize the tax loss carryforwards of banks they acquire to shield up to? 100% of their future income from taxes? (prior law restricted the ability of acquirers to use these? credits). Suppose Fargo Bank acquired Covia Bank and with it acquired $ 58 billion in tax loss carryforwards. If Fargo Bank was expected to generate taxable income of $8 billion per year in the? future, and its tax rate was 30%?, what was the present value of these acquired tax loss carryforwards given a cost of capital of 8%?? How would the present value change under current law which restricts the amount of the deduction to 80% of? pre-tax income?

Reference no: EM132395414

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